WASHINGTON — A number one House Republican voice on the national security threat posed by China said the White House’s plan to limit outbound investment within the Chinese military and defense corporations falls in need of addressing the actual problem.
President Joe Biden’s executive order, which is anticipated to be implemented next 12 months, “takes a very important step in the precise direction,” but it surely must have accounted for public market investments into Chinese firms collaborating with the Chinese military or complicit in human rights abuses, Rep. Mike Gallagher, said on CNBC’s “Squawk Box” on Friday.
The chief order may even require outbound U.S. investors to notify the Treasury Department about transactions involving certain technologies that would pose a threat to the US.
The Wisconsin Republican is the chairman of the House Select Committee on the Chinese Communist Party and a number one voice within the House on the risks of U.S. investment in China.
Americans who spend money on company stocks, mutual funds, ETFs and bonds on the general public market risk inadvertently contributing to technology that poses a possible national security threat in the event that they depend on U.S. financial firms that spend money on corporations blacklisted for supporting the CCP.
The House CCP Committee has flagged around 50 firms, including machinery, aircraft and technology firms and created a de facto blacklist.
Gallagher argued that investment restrictions could be used each defensively for national security, and as a weapon to weaken China’s economic stature and its military capabilities by cutting off funds.
“The CCP is an adversary and you do not defeat an adversary or deter an adversary by shoveling billions of dollars into their military and technology program,” he said.
He also contended that investments like American retirement plans mustn’t be dependent for returns on corporations that would pose a threat to the long-term security of the plans’ investors.
“We have now to ask ourselves if we wish the pension fund, the general retirement health of tens of millions of Americans, to be depending on the success of investing in things like [Chinese] aircraft carriers, artillery shells, and fighter jets.”
China is currently the third largest U.S. trading partner behind Mexico and Canada, a reality that puts the White House in a difficult position of attempting to restrict specific U.S. investments while keeping the general bilateral trade relationship stable.
Gallagher’s statements come because the Chinese government announced on Thursday that it’s considering countermeasures to Biden’s order.
Last month, the House CCP Committee sent inquiries to U.S.-based global investment firms MSCI and BlackRock searching for more details about how the firms might direct U.S. investments into Chinese corporations on a committee blacklist.
“We do not think Blackrock or MSCI should funnel American dollars into certain corporations like this, and we want to shut the loopholes and at a minimum, ensure Americans usually are not knowingly or unknowingly funding the Chinese Communist Party,” Gallagher said Friday.
MSCI provides investment data and analytics to assist clients make investment decisions in numerous global markets. In an announcement to CNBC, the corporate said it’s that it “engaging constructively with the House Select Committee” and “complies with all applicable U.S. laws.”
BlackRock is the world’s largest asset manager and has previously said it offers its clients options to avoid investing in certain Chinese sectors. The corporate told CNBC Friday that it complies with applicable laws and “the vast majority of our clients’ investments in China are through index funds.”
The chief order grants Treasury Secretary Janet Yellen broad authority to find out what’s a covered investment — an excessive amount of authority, based on Gallagher.
The brewing debate over how widely to use restrictions is pitting the White House against China skeptics on Capitol Hill, each Republicans and a big cohort of Democrats.
Yellen has already signaled that she intends to maintain any investment restrictions “narrowly targeted” to guard U.S. national security, and insists they usually are not intended to weaken China’s economy.
“Though these policies can have economic impacts, they’re driven by straightforward national security considerations,” she said in an April speech.
Treasury is accepting public comment on the proposed rules in the manager order through Sept. 28. Thus far, nonetheless, no formal timeline has been released for the issuance of ultimate rules on outbound investment restrictions.
